Our house is on fire. Join the resistance: Do no harm/take no shit. My idiosyncratic and confluent bricolage of progressive politics, the collaborative commons, next generation cognitive neuroscience, American pragmatism, de/reconstruction, dynamic systems, embodied realism, postmetaphysics, psychodynamics, aesthetics. It ain't much but it's not nothing.

Sunday, June 24, 2012

Wall Street bid-rigging trial

Matt
Taibbi reports on the financial corruption case against Carollo
et al. I guess we're no longer
surprised by this kind of huge corruption. Nor should we be that
those guilty felt they could commit such crimes with impunity.
I saw exactly this kind of activity when I worked in the insurance
industry and was one reason I decided to retire early from its
corrupt business practices. See for example the infamous insurance
bid-rigging case Elliot Spitzer prosecuted back in '05, and why I
left one agency representing the insurance carrier involved in that
scam. This exact behavior is continuously ongoing in the industry to
this day.

A few
excerpts from the article:

“The
banks achieved this gigantic rip-off by secretly colluding to rig the
public bids on municipal bonds, a business worth $3.7 trillion. By
conspiring to lower the interest rates that towns earn on these
investments, the banks systematically stole from schools, hospitals,
libraries and nursing homes – from 'virtually every state, district
and territory in the United States,' according to one settlement. And
they did it so cleverly that the victims never even knew they were
being ­cheated.

“In
most cases, towns and cities, called issuers,
are legally required to submit their bonds to a competitive auction
of at least three banks, called providers.
The scam Wall Street cooked up to beat this fair-market system was to
devise phony auctions. Instead of submitting competitive bids and
letting the highest rate win, providers like Chase, Bank of America
and GE secretly divvied up the business of all the different cities
and towns that came to Wall Street to borrow money. One company would
be allowed to 'win' the bid on an elementary school, the second would
be handed a hospital, the third a hockey rink, and so on.

“How
did they rig the auctions? Simple: By bribing the auctioneers, those
middlemen brokers hired to ensure the town got the best possible
interest rate the market could offer. Instead of holding honest
auctions in which none of the parties knew the size of one another's
bids, the broker would tell the pre­arranged 'winner' what the
other two bids were, allowing the bank to lower its offer and come in
with an interest rate just high enough to 'beat' its supposed
competitors. This simple but effective cheat – telling the winner
what its rivals had bid – was called giving them a 'last look.' The
winning bank would then reward the broker by providing it with
kickbacks disguised as 'fees' for swap deals that the brokers weren't
even involved in.

“The
end result of this (at least) decade-long conspiracy was that towns
and cities systematically lost, while banks and brokers won big. By
shaving tiny fractions of a percent off their winning bids, the banks
pocketed fantastic sums over the life of these multimillion-dollar
bond deals. Lowering a bid by just one-100th of a percent, called a
basis
point,
could cheat a town out of tens of thousands of dollars it would
otherwise have earned on its bond deposits.

“How
did the government manage to make a case against so many Wall Street
scam artists? Hubris... Even though they knew they were being
recorded by their own company, the trio of defendants in Carollo
wantonly fixed bond auctions despite the fact that their own firm was
taping the conversations....because the bid rigging was so incredibly
common the defendants simply forgot to be ashamed of it.... 'It
became the predominant mode of transacting business.'

“When
we allow Wall Street to continually raid the public cookie jar, we're
not just enriching a bunch of petty executives...we're effectively
creating an alternate government, one in which money lifted from the
taxpayer's pocket through mob-style schemes turns into a kind of
permanent shadow tax, used to maintain the corruption and keep the
thieves in place. And that cuts right to the heart of what this case
is all about. Wall Street is tired of making money by competing for
business and weathering the vagaries of the market. What it wants
instead is something more like the deal the government has –
regularly collecting guaranteed taxes. What's crazy is that in order
to justify that dream of regular, monopolistic tribute, they've begun
to see themselves as a type of shadow government, watching out for
the rest of us. Amazingly enough, this even became a defense at
trial.

"The
men and women who run these corrupt banks and brokerages genuinely
believe that their relentless lying and cheating, and even their
anti-competitive cartel­style scheming, are all legitimate market
processes that lead to legitimate price discovery. In this lunatic
worldview, the bid­rigging scheme was a system that created fair
returns for everyone.... This
incredible defense, which the attorneys for all three defendants led
with, perfectly expresses the awesome arrogance of the modern-day
aristocrats who run our financial services sector. Corrupt or not,
they built this financial infrastructure, and it's producing the
prices they genuinely think are fair for us – and for them. And
fair to them is the customer getting the absolute bare minimum, while
they get instant millions for work they didn't do. Moreover – and
this is the most important part – they believe they should get
permanent protection from the ravages of the market, i.e., from one
another's competition.... That, ultimately, is what this case was
about. Capitalism is a system for determining objective value. What
these Wall Street criminals have created is an opposite system of
value by fiat. Prices are not objectively determined by collisions of
price information from all over the market, but instead are
collectively negotiated in secret, then dictated from above.”

This
activity shows that free market capitalism based on fair competition
is NOT what these big businesses are interested in, despite their
bullshit spin designed to fool their victims. It's greed and
corruption, plain and simple. And criminal, if we'd only have the
fortitude to continue such trials and convictions with real
consequences. As Taibbi points out though, even when we get the
convictions the penalties are slaps on the wrist and the practices
continue unabated, mainly because these biggest of criminals now have
the money to buy elections and legislators that decriminalize such
activities. Or at least pay off penalties that come out of petty cash
when they're caught red-handed.

1 comment:

Health insurance and medical malpractice companies (I worked for the latter) are exempt from the same kind of anti-trust laws noted above via the McCarran-Ferguson Act. Several times legislation has been proposed to remove these exemptions and several times insurance company lobbyists have stormed DC to overturn it. Another Bill has recently been proposed*, which no doubt will again lose out given the bought-and-paid for Republicans that rule Congress.